Constitutional Scrutiny of Economic Policies

Economic policy denotes the actions that the governments take in the economic sphere. These policies cover the systems for setting up taxes, making budgetary allocation for the government, the labour market, and several other zones of government interventions into the economy. In a democracy, it is the elected officials who are entrusted with the task of policy formation. The Constitution provides for the offices that have decision-making rights over policies and also provides the procedure for filling such offices through elections or appointments.

As per Article 12 of the Constitution of India, both the legislature and the executive are considered as State. The Constitution binds them to formulate laws that benefit the citizens of the country while respecting their fundamental rights. Article 13 of the Constitution provides the definition of ‘law’ which is an inclusive one that even includes “notifications, rules and regulations”. The State is the only actor who can make healthy policies as it is in the best position to account for its resources. Several factors such as political will, budgetary contemplations, enhancement of assets assume a prominent part in constructing the structure of policies. Therefore, a policy made by the government and realised through a notification would be considered as a law. However, it is mandated by the Constitution that such policies should not take away or abridge an individual’s guaranteed rights. Economic policies would also be deemed law and, therefore, would be subject to fundamental rights and other constitutional scrutinies.

Over the last year, several cases relating to policies have come before the Supreme Court. The Central Government has maintained a uniform line of argument that the powers of judicial review that rest with the courts to scrutinise policy decisions are limited in nature. In the case of Association for Democratic Reforms v. Union of India[1] (the electoral bond case), it was argued by the Attorney General that courts should not subject economic policies to judicial scrutiny and that they should allow the Government to experiment in such matters. In light of the recently enacted farm laws and the questions regarding their validity, this article seeks to evaluate if courts even have the power to do constitutional scrutiny of an economic policy.

CAN THERE BE A CONSTITUTIONAL SCRUTINY OF AN ECONOMIC POLICY?

Clear demarcations have been made out in the roles of the three organs of the democratic government. However, overlap can be seen at times. Nonetheless, policymaking is an exclusive field of the executive and the legislature. Moreover, generally, the judiciary getting itself involved in the policymaking exercise is frowned upon. Therefore, in such cases, the judiciary usually exercises judicial deference and places its confidence in the decision-making powers of the executive and the legislature. It does so because it believes that policy decisions require great discussions and deliberations from experts of various fields, which the judiciary lacks. This is even more true in cases of economic policies, which are much more technical and nuanced and impact other spheres as well. Thus, the judiciary does not find itself in a position where it can be a better judge of how good or bad a policy is.

However, that does not mean that the government’s economic policies are immune from the scrutiny of the courts. Over the years, the Supreme Court has passed a slew of judgements talking about the High Court and Supreme Court’s power to review the economic policy decisions of the government. Most of these judgements deal with the fiscal policies of the government, i.e., tax-related issues. In such cases, the argument that the policy violates the constitutional “right to practise any profession or carry on any occupation, trade or business” is taken up in response to the orders passed by the government in relation to the tax structure. All these cases relating to the economic policies fall under three categories:

1. Where the Courts do not Interfere:

In the cases under this category, the courts have held that fiscal policies of the government are not justiciable, thus giving free rein to the government in these matters. However, the courts look into constitutional rights as well.

(i) Navjivan Mills v. Union of India[2]

In this particular case, the issue was whether the Government of India is under any commitment to collect what is known as “additional duty” comparable to excise duty on articles brought into India if a like article, made in India, is exposed to excise duty.

The Court stated that it was the State’s discretion on whom and what it would levy a tax and that the legislation cannot be called into question on the ground that it taxes some and not others. However, when such classification is unreasonable and cannot be justified on any valid grounds, such legislation can be held to be violative of Article 14 of the Constitution.

The Court decided that it was not for them to comment on the government’s strategy or the wisdom or otherwise of the economic decisions made and that all they cared about was whether the power to issue the notifications existed and, if it did, whether it was used in a malicious way.[3]

(ii) M/s Pankaj Jain Agencies v. Union of India[4]

In this case, a petition was brought under Article 32 of the Constitution to declare as ultra vires a notification passed by the Central Government, which modified an earlier notification of the same government. These notifications were in relation to the rates of customs duty on the imports of parts, components and sub-assemblies of Ball Bearings and Roller Bearings. The petitioners had urged that their fundamental rights under Article 19(1)(g) of the Constitution were being restricted as the enhancement in the duty brought about by the new notification was raising their monetary liability.

The Court held that a tax, even though it may be in the nature of duties, is not per se violative of Article 19(1)(g). A mere excessiveness of a tax does not violate Article 19(1)(g) either. It went on to say that there does not exist any absolute right, let alone a fundamental right to import. That apart, the Court did not find any relation between the increase in the tax and the destruction of the petitioners right to carry on a trade or business.[5]

2. If Public Policy is in the Best Interest of the Public:

In this category of cases, the courts have said that when the government brings about a policy, the goal of which is to bring welfare to the public, or in other words, which is taken in the public interest, the courts cannot intervene. It can be argued that the courts have taken a lackadaisical approach in some of these judgements as they have not even questioned this public interest. If a policy decision is not being scrutinised on its merits because it is taken in the public interest, it was the duty of the courts to test the public interest itself to ensure some form of accountability.

(i) Kasinka Trading and Another v. Union of India[6] – In this particular case, the petitioners challenged the withdrawal of a time-bound exemption, which the Central Government gave for the import of PVC resins.

While dismissing the challenge, the Court said, “The withdrawal of exemption ‘in public interest’ is a matter of policy and the Court would not bind the Government to its policy decisions for all times to come, irrespective of the satisfaction of the Government that a change in the policy was necessary in the ‘public interest’. The courts, do not interfere with the fiscal policy where the Government acts in ‘public interest’ and neither any fraud or lack of bonafides is alleged much less established.”[7]

(ii) R.C. Tobacco Pvt. Ltd. v. Union of India[8]

In this particular case, the Supreme Court held as constitutionally valid a retrospective withdrawal of an exemption in the interests of the general public. However, what was surprising was that the Court did not even scrutinise this declared public interest. The Court did not find it necessary to question the government on whether the public interest as spelt out by them was reasonable or not.

3. Where the Courts can get Involved:

In the cases under this category, courts have ruled that the economic or fiscal policy of the Government is justiciable. While the cases in the previous categories did have constitutional questions, it is in this category that the cases primarily deal with the constitutional scrutiny of the economic policies. Constitutional scrutiny involves testing the policy on the principles of the Constitution, whether the policy is arbitrary, or discriminatory or violates any other fundamental rights or is in opposition to any provision of the Constitution. In the following judgements, it will be seen that the courts do subject the economic policies to the Constitutional provisions. However, they also provide a certain leeway to the Government in this regard and are not very strict in the policy’s compliance with the Constitutional provisions. Therefore, the courts do not hold the policies ultra vires unless the policy is grossly arbitrary or completely goes against the spirit of the Constitution.

(i) Indian Express Newspapers v. Union of India[9]

In this case, a few newspapers petitioned the Supreme Court, arguing that the imposition of a costly and excessive import obligation violated the freedom of the press as guaranteed by Article 19(1)(a) of the Constitution, which guarantees the right to talk and express freely. The Supreme Court ruled that newspaper and press freedom are linked because “newsprint is the body, if expression happens to be the soul.” In light of this, the Supreme Court ruled that a toll on newsprint should be tested on more stringent grounds.[10]

The Supreme Court held, “In the case of ordinary taxing statutes the laws may be questioned only if they are either openly confiscatory or a colourable device to confiscate. On the other hand, in the case of a tax on newsprint, it may be sufficient to show a distinct and noticeable burdensomeness, clearly and directly attributable to the tax. Though tax can be levied on the newspaper industry such levy is subject to review by Courts in the light of the provisions of the Constitution.”[11] The Court further stated that where the Government has to exercise its power in the public interest, it will require the Government to make sure that the power is exercised in a reasonable way in accordance with the spirit of the Constitution.

The petitioners also claimed that classifying newspapers into small, medium, and large categories for the purpose of imposing import duties violated Article 14 of the Constitution. The Court, however, found the classification as valid. It stated that the object of such classification was to bring down the cost of production of the small and medium newspapers, which do not even generate any significant revenue from advertisement. The majority of these newspapers were in local languages and catered to the rural sector. As such, the Court did not find any mala fide intention in the object and was able to draw a clear nexus between the classification and the object.[12] Thus, from this judgement, we find that courts can scrutinise an economic policy if it is in clear violation of a fundamental right.

(ii) Dai-Ichi Karkaria Ltd. v. Union of India[13]

The decision, in this case, clarifies the position of the Court regarding the public interest point. In the previous section, we saw that the courts did not intervene when the Government justified their economic policies on the grounds of public interest. While the Court took a similar stance in the Dai-Ichi case, the Court went on to say that it can scrutinise the very nature of that public interest. Furthermore, once the scrutiny process begins, the Court might be deemed to have intervened in the policy. In this case, the Court was not satisfied with the Government’s declaration of the legitimacy of the public policy and consequently overturned the withdrawal of the exemption.[14]

(iii) BALCO Employees’ Union v. Union of India[15]

The validity of the disinvestment and transfer of 51% shares of M/s Bharat Aluminum Company Limited (BALCO) by the Central Government was challenged. The Court said that the protection of Articles 14 and 16 of the Constitution, which the workers had, on account of BALCO being recognised as State, does not give the workers the right or makes it the government’s responsibility to provide the workers with notice of hearing before disinvesting. The Court went on to say that the principles of natural justice do not come into play while taking a policy decision in economic matters.[16] The Supreme Court held, “The policy of disinvestment cannot be faulted if as a result thereof, the employees lose their rights or protection under articles 14 and 16 of the Constitution. In other words, the existence of rights of protection under articles 14 and 16 of the Constitution cannot possibly have the effect of vetoing the Government’s right to disinvest. Nor can the employees claim a right of continuous consultation at different stages of the disinvestment process.”[17] The Court stated that the executive is the best judge in areas of economic policy and that it would only investigate an economic policy if the Union Government violated a constitutional or statutory requirement.

(iv) D.S. Nakara & Others v. Union of India[18]

The pension policy of the Government was brought to question in this case. The Central Government had liberalised the pension computation formula, which had increased the pension amount. However, the beneficiaries of this new scheme were only those who were to retire from the date of the implementation of the new scheme. Moreover, those who were getting pensions before the implementation of the new scheme were continued to be governed by the old formula. Basically, the Government had created a sub-classification amongst the pensioners on the basis of the date of their retirement.

According to the Supreme Court, even while Article 14 prohibits class legislation, it allows for reasonable classification for legislative reasons. Intelligible differentia, which distinguishes between those who are grouped together and those who are excluded, and rational nexus, which makes a link between the object and the classification, must be tested in order for such classification to be valid.  The Court held, “The division which classified the pensioners into two classes on the basis of the specified date was devoid of any rational principle and was both arbitrary and unprincipled being unrelated to the object sought to be achieved by grant of liberalised pension and the guarantee of equal treatment contained in Article 14 was violated.”[19] The Court declared the classification part as unconstitutional and ruled that all pensioners would be entitled to pension as computed under the liberalised pension scheme from the specified date, irrespective of the date of retirement.

(v) State of M.P. v. Nandlal Jaiswal[20]

In the particular case, there was a change in the policy decision as taken by the State of M.P., which would grant a license to existing manufacturers to construct distilleries for liquor-related activities. This particular decision of the Government was challenged.

Talking on the applicability of Article 14, the Court stated that the grant of manufacturing license for liquor was a matter of economic policy and that unless such a decision appeared to be completely arbitrary, irrational or mala fide, the Court would hesitate to strike down such a decision. The Court mentioned that in K. Garg v. Union of India[21], they had the occasion to discuss the interference under Article 14 in economic matters, where they held that greater latitude would be provided in economic matters than those laws which deal with civil rights of freedom of speech, religion, and the like.

(vi) Parisons Agrotech Pvt. Ltd. v. Union of India[22]

In this case, the Supreme Court held that if it is discovered that enough material has been considered in formulating a policy decision to bring it within the confines of Article 14 of the Constitution, the Court’s power of judicial review will not extend to deciding the correctness of such an approach or to determining if there could be a better way.[23]

CONCLUSION

It can be seen that, for the most part, courts do not like to rule on economic policies and try to keep themselves distant from breaching the boundaries of separation of powers. From all the three categories of cases that have been discussed above, we can conclude that in matters relating to economic policy, the courts will generally not interfere and would uphold the policy if it is made in public interest. However, such public interest would be subject to scrutiny, and the power exercised in public interest would have to be in compliance with the principles of the Constitution. On a perusal of the cases discussed in the preceding section, it is clear that the courts would interfere with an economic policy decision only if it is arbitrary, discriminatory, and mala fide or actuated by bias. If Article 14 parameters are fulfilled, i.e., application of mind is there in the decision-making process which is backed by convincing material, the policy decision is neither arbitrary nor irrational, and it is taken in the interests of the public, then the courts have to respect the policy decision of the executive, and the policy is considered to have passed the judicial scrutiny. Therefore, if the economic policy in question does not violate any statutory provision, is consistent with the fundamental rights of the citizens and does not violate any other provision of the Constitution, then there is nothing else that the courts can do about it.

It should be noted that judicial scrutiny of policy decisions is not concerned with the merits of the case rather the way in which such a decision has come into place. It goes beyond the scope of the judiciary’s power to replace one policy with another. Therefore, the courts would be guilty of usurping power if they try to replace the decision of the executive with its judgement. The decision-making procedure in cases of economic policies also falls within the realm of judicial scrutiny.[24]

The economic policies of the country should be implemented in such a way that the fundamental rights of the people of the country are not abridged. Moreover, if any restriction is to be imposed, it should be a reasonable one, and such restriction should not be placed in an arbitrary manner. Restricting trade through the waterways can be an example in this regard as such a restriction can be considered reasonable as smuggling mainly occurs through the seaports. Thus, this would satisfy the public interest test. It is, thus, the duty of the courts to strike a balance between not undermining the government’s discretion in economic policies and upholding the constitutional rights of the people.


[1] 2019 SCC OnLine SC 1878.

[2] Navjivan Mills v. Union of India, 1982 (10) ELT 155 (Guj).

[3] Navjivan Mills v. Union of India, 1982 (10) ELT 155 (Guj), ¶24.

[4] M/s Pankaj Jain Agencies v. Union of India, 1994 SCC (5) 198.

[5] M/s Pankaj Jain Agencies v. Union of India, 1994 SCC (5) 198, ¶22.

[6] Kasinka Trading and Another v. Union of India, AIR 1995 SC 874.

[7] Kasinka Trading and Another v. Union of India, AIR 1995 SC 874, ¶23.

[8] R.C. Tobacco Pvt. Ltd. v. Union of India, 2005 (188) ELT 129 (SC).

[9] Indian Express Newspapers v. Union of India, AIR 1986 SC 515.

[10] Sukumar Mukhopadhyay, “Power of Supreme Court to Intervene in Executive Policy”46(32) EPW (2011).

[11] Indian Express Newspapers v. Union of India, AIR 1986 SC 515, ¶69.

[12] Indian Express Newspapers v. Union of India, AIR 1986 SC 515, ¶103.

[13] Dai-Ichi Karkaria Ltd. v. Union of India, 2000 (119) ELT 516 (SC).

[14] Sukumar Mukhopadhyay, “Power of Supreme Court to Intervene in Executive Policy”46(32) EPW (2011).

[15] BALCO Employees’ Union v. Union of India, AIR 2002 SC 350.

[16] BALCO Employees’ Union v. Union of India, AIR 2002 SC 350, ¶47.

[17] BALCO Employees’ Union v. Union of India, AIR 2002 SC 350, ¶48.

[18] D.S. Nakara & Others v. Union of India, 1983 SCR (2) 165.

[19] D.S. Nakara & Others v. Union of India, 1983 SCR (2) 165.

[20] State of M.P. v. Nandlal Jaiswal, (1986) 4 SCC 566.

[21] K. Garg v. Union of India, (1981) 4 SCC 675.

[22] Parisons Agrotech Pvt. Ltd. v. Union of India, (2015) 9 SCC 657.

[23] Parisons Agrotech Pvt. Ltd. v. Union of India, (2015) 9 SCC 657, ¶14.

[24] Pratap Kumar and Aditya Swarup, “Socialism and the New Economic Order: Constitutional Perspectives” 3 NALSAR Stud L Rev 9-1 (2007).

Author: Aditya Raj Sharma from WBNUJS, Kolkata.

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